Real Estate & Cap Gains

[Terry D EA]

Client's father knew of his impending death (passed 6 months after) and transferred 3 properties to one of his three sons, recorded the deed(s) in the son's name etc. All legit. The son who received the properties wants to honor the dad's will and "GIVE" each brother their portion. I think I know the answer but just want to bounce it around to be sure. When the property for each brother is deeded in each of their names and no funds change hands, their basis is the brother's basis who transferred the property. The brother's basis who transferred the property is their father's basis plus any improvements at the time the dad transferred the property. So basically, if dad paid 40K for the property in 2009, then the brother who receives the property now has 40K as their basis. No inheritance here and no step up as I see it.

The only reason the dad did this cause he thought he was protecting the property from Medicaid should that come into play. It may sound cold but it is best things happened the way they did. In this situation had Medicaid gotten involved they would have had a much bigger mess to clean up. 

[Max W]

The Medicaid look-back period is 60 months, so if Dad had lived longer and required medicare this story would not be over.  

 

[Terry D EA]

You are correct but am I on the right track?

[Lee B]

On 7/24/2019 at 6:11 AM, Terry D said:

. . . When the property for each brother is deeded in each of their names and no funds change hands, their basis is the brother's basis who transferred the property. The brother's basis who transferred the property is their father's basis plus any improvements at the time the dad transferred the property. So basically, if dad paid 40K for the property in 2009, then the brother who receives the property now has 40K as their basis. No inheritance here and no step up as I see it. . . .

Terry, I agree

[Abby Normal]

Wouldn't these gifts be clawed back into the estate?

[Max W]

7 hours ago, Abby Normal said:

Wouldn't these gifts be clawed back into the estate?

That would depend on the state.  NY seems to be the main culprit, but even there they are more concerned with multi-million dollar estates, than these "Trifling" amounts.

[DANRVAN]

On 7/25/2019 at 10:31 AM, Abby Normal said:

Wouldn't these gifts be clawed back into the estate?

Are you referring to gifts made with in 3 years of death?  They are generally not included unless the decedent retained a life estate, made a revocable transfer or the transfer was effective upon death.

Claw back is a concern when there is an increase in basic exclusion subject to sunset.   For example taxpayer gifts $10 million in 2019 excluded under TCJA but dies in 2026 when exclusion reverts to $5 million.  IRS has proposed rule to resolve that issue.